Scancafe Digital Solutions Pvt. Ltd. v. Income-tax Officer, Ward 6(1)(1), Bengaluru
[Citation -2017-LL-0412-69]

Metadata

Citation 2017-LL-0412-69
Appellant Name Scancafe Digital Solutions Pvt. Ltd.
Respondent Name Income-tax Officer, Ward 6(1)(1), Bengaluru
Court ITAT-Bangalore
Relevant Act Income-tax
Date of Order 12/04/2017
Assessment Year 2010-11
Judgment View Judgment
Keyword Tags international transaction • wholly owned subsidiary • transfer pricing • profit margin • total cost • tpo
Bot Summary: Briefly, facts of the case are that the assessee is a company incorporated under the provisions of the Companies Act, 1956. The TPO then proceeded to identify different set of comparable entities for the purpose of determining ALP. While doing so, TPO applied the following filters: Companies for which current year data was available Companies whose ITE Service incomeRs. Companies having different financial year ending or data of the company does not fall within 12 month period i.e. 01/04/2009 to 31/03/2010 were rejected. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Pvt. Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entitles cannot be taken as comparables for the purpose of determining IT(TP)A Nos.502 450/Bang/2015 Page 12 of 26 ALP of the transactions of the assessee company with its AEs. In view of this, the learned Departmental Representative supported the decision of the TPO to include this company in the list of comparable companies. The extraordinary event is a relevant factor for considering the comparability of company only when it has resulted into abnormal influence on the functions and profit margins of the company. For the reasons given above, we are of the view that if the functions actually performed by the assessee company for its AEs are compared with the functional profile of M/s eClerx Services Pvt. Ltd. and Mold-Tec Technologies Ltd., it is difficult to find out any relatively equal degree of comparability and the said entities cannot be taken as comparables for the purpose of determining ALP of the transactions of the assessee company with its AEs.

Judgment



IN INCOME TAX APPELLATE TRIBUNAL B BENCH: BENGALURU BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER and SHRI LALIET KUMAR, JUDICIAL MEMBER IT(TP)A No.502/Bang/2015 (Assessment year: 2010-11) and Cross Objn.No.139/Bang/2015 (In IT(TP)A No.502/Bang/2015) (Assessment year: 2010-11) M/s.Scancafe Digital Solutions Pvt. Ltd. Ground Floor, Neil Rao Towers, Plot No.118, Road No.03, EPIP Phase-1, Whitefield Main Road, Bengaluru-560066 Appellant PAN:AAKCS 5398 E Vs. Income-tax Officer, Ward 6(1)(1), Bengaluru. Respondent AND IT(TP)A No.450/Bang/2015 (Assessment year: 2010-11) (By Revenue) Assessee by : Shri Chavali Narayan, CA. Revenue by : Shri G.Kamaladhar, Standing Counsel. Date of hearing : 15/03/2017 Date of pronouncement : 12/04/2017 ORDER Per INTURI RAMA RAO, AM : These cross appeals filed by assessee-company as well as revenue and cross objections by assessee are directed IT(TP)A Nos.502 & 450/Bang/2015 Page 2 of 26 against order of assessment passed u/s 143(3) r.w.s. 144C of of Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] dated 30/01/2015 for assessment year 2010- 11. assessee also filed cross objections against assessment order dated 30/01/2015 for assessment year 2010-11. 2. Briefly, facts of case are that assessee is company incorporated under provisions of Companies Act, 1956. It is wholly owned subsidiary of ScanCafe Inc., USA. It is engaged in business of providing digital imaging services falling within category of IT enabled Services (ITeS) to its AEs. assessee-company is compensated by AE at cost +17% mark0up basis. It has filed return of income for assessment year 2010-11 on 27/09/2010 declaring total income of Rs.52,010/-. assessee-company also reported international transaction of provision of digital imaging services (ITeS) of Rs.17,58,08,037/- in its Form 3CEB. assessee-company sought to justify consideration received for international transaction entered with its AE to be at arm s length. assessee-company had also submitted transfer pricing study report adopting operating profit to total cost as profit level indicator (PLI) for transfer pricing study. assessee- company also adopted TNMM which was considered to be most appropriate method for purpose of bench marking its international transaction. assessee-company s profit margin IT(TP)A Nos.502 & 450/Bang/2015 Page 3 of 26 was computed at 17.1% and assessee-company claimed that international transactions in IT enabled Services (ITeS) segment are at arm s length. For purpose of TP study assessee-company had chosen 9 comparable entities and and arithmetic average of operating profit margins of said comparables was computed at 18.53%. According to assessee-company, its PLI was within +/- of range of arithmetic mean of comparable entities. Hence, it was claimed that transactions with its AE are at arm s length. assessee-company had chosen following 9 entities as comparables whose average profit margin was computed at 18.53%: Sl. Particulars Margin No. (%) 1 Accentia Technologies Ltd. 42.42% 2 Aditya Birla Minacs Worldwide Ltd. 1.00% 3 CG-VAK Software & Exports Ltd. -3.23% 4 Cepha Imaging Pvt.Ltd. 2.87% 5 Cosmic Global Ltd. 36.35% 6 Informed Technologies India Ltd. 11.05% 7 Infosys BPO Ltd. 23.02% 8 R Systems International Pvt. Ltd. 9.95% 9 Vishal Information Technologies Ltd. 43.33% 3. AO referred matter to TPO for bench marking above international transactions. TPO, by order dated 03/01/2014 passed u/s 92CA(3) of Act, computed TP adjustment at Rs.1,17,43,778/-. TPO accepted TNMM method adopted by assessee-company as most appropriate method and also operating profit to operating cost (OP/OC) as IT(TP)A Nos.502 & 450/Bang/2015 Page 4 of 26 PLI, however, rejected TP study report submitted by assessee-company. TPO then proceeded to identify different set of comparable entities for purpose of determining ALP. While doing so, TPO applied following filters: Companies for which current year data was available Companies whose ITE Service income
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